VIJAY KUMAR JAIN,GHAZIABAD vs. DCIT, CIRCLE- 2, GHAZIABAD

Present appeal has been filed by assessee against order of Ld. CIT(Appeals)-2, Noida dated 22.03.2018 for A.Y. 2011-12 on the following grounds of appeal: 1.That on the facts and in the circumstances of the case and in law, the order passed by Ld. Commissioner of Income Tax (Appeals) ("CIT(A)") is bad in law. 2.That on the facts and circumstances of the case and in law, the Ld CIT(A) erred in confirming the action of the Ld. Assessing Officer ("Ld. AO") of passing order u/s 147 Income Tax Act, 1961 ('the Act'). The said order passed by the Ld AO is void ab-initio on, inter alia, the grounds that: a) Assumption of jurisdiction under section 148 is bad in law as the Ld. AO did not apply his mind on the information received by the CBI ITA 3794/Del/2018 A.Y.:2011

Aggrieved by additions made by Ld.AO assessee preferred appeal before Ld. CIT (A) on issue of reopening of assessment, as well as on merits of additions. Ld. CIT(A) upheld issue of reopening of assessment and also confirmed addition so made in assessment order.

Aggrieved by order of Ld.CIT (A) assessee is in appeal before us now.

At the outset Ld. Counsel submitted that Ground No. 1 is general in nature and therefore do not require adjudication.

Ground No. 2 is in respect of challenge raised by assessee against initiation of proceedings under section 147 of the Act as void ab initio. Ld. Counsel submitted that Ld. A.O. assumed wrong jurisdiction under section 148, and entire proceedings are bad in law. In support of his argument, he submitted that information based upon which reopening has been initiated by Ld. AO is CBI Report. Referring to CBI Report placed at page 145-194 of paper 5 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain book Ld. Counsel submitted that reason to believe of income having escaped assessment, does not emanate from the reasons recorded. He submitted as under: Sl. Information received from CBI by Addition made by the Ld.AO No. the Ld.AO I. Cash seized of INR 1.40 crores Advance of INR 1.40 crores from the residence of the was received from Mr. KK appellant. Agarwal against the agreement to sale of property at Kavi Nagar Ghaziabad.

Ld. Counsel submitted that Ld. AO proceeded merely on basis of report from CBI, and there is no independent finding by Ld. AO regarding escapement of income. He submitted that no further efforts have been made by Ld.AO in order to ascertain that income has really escaped assessment. Ld. Counsel placed reliance upon 6 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain decisions of Hon’ble Delhi High Court in the case of Pr.CIT vs. Meenakshi Overseas Pvt.Ltd., reported in (2017) 82 Taxmann.com 300 and SABH Infrastructure Ltd vs. ACIT in writ petition No. 1357/2016 vide order dated 25/09/17. 7.1 Ld. Counsel submitted that since there was no independent application of mind by Ld.AO on material, reasons recorded fails to demonstrate link between tangible material and formation of reason to believe, that income has escaped assessment. He further submitted that there is no live link between reasons recorded for reopening. He further submitted that reopening has been initiated merely to make further investigation and rowing enquiries, which is not permitted. To substantiate his arguments, He supported them with the judicial precedents. He thus submitted that Ld.A.O, do not have jurisdiction to invoke re-assessment proceedings in present facts of the case.

Ld. Sr. DR submitted that reopening is valid. He submitted that assessee filed original return of income u/s 139(1) of the Act in which sum seized and found by CBI was not disclosed. Therefore, Rs. 2.10 crore found during course of such is a live link of escapement of income, which stood undisclosed in return of income. He submitted that Ld. AO applied his mind and noted that there is escapement of income. He further stated that original return of income was not assessed under section 143 (3) of Act. It was processed under section 143 (1) of the Act. Ld. AO then verified return of income originally filed by assessee and then concluded that there is escapement of income. Amount of Rs. 2.10 crore was found to have been not disclosed in original return filed by assessee, that was seized by CBI and, therefore, there is a live link between material and escapement of income. 8.1 Ld. Sr. DR submitted it was not the intention of Ld. AO to make further investigation, or rowing enquiries, but to make specific investigation and enquiries, with respect to amount of Rs. 2.10 7 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain crore found during course of search by CBI. He thus, submitted that reopening is valid. It was also argued by Ld. Sr. DR that when such huge amount of cash is seized from a salaried person, which do not form part of orginal return of income, Assessing Officer is only required to arrive at a prima facie reasonable belief of income having escaped assessment. He is not supposed to reach at a conclusion at the time of recording of reasons. He submitted, that when there is cash available, which is not disclosed in books of accounts which are not at all maintained by assessee and which are not attached with return of income it cannot be said that Ld. AO did not have any reason to believe regarding escapement of income. Therefore, according to him reopening was valid.

We have perused submissions advanced by both sides in the light of records placed before us. The fact itself reveals that search operation was carried out by Central Bureau of Investigation on 11/2/2011 at premises of assessee and cash of Rs. 2,10,56,500/– and US 40, 000 was found and seized from possession of assessee. Ld. AO recorded reason, which is placed at page number 17 of paper book. Admittedly seizure of cash by CBI was not mentioned by assessee in original return of income and, therefore prima facie it appears that, said amount has not been disclosed by assessee for income tax purposes. Therefore, Ld. AO formed reason to believe that there is a need to verify the source of Rs. 2,10,56,500/- and US$ 40,000. In our considered opinion, reasons recorded by Ld. AO does not suffer from any infirmity as Ld. AO verified original return filed by assessee u/s 139(1) of the Act on the basis of CBI Report. Ld. AO then upon verification of return of income, found that seized amount has not been disclosed for the income tax purposes. Therefore, he had reasons to believe that there is escapement of income. 9.1 Thus, in our considered opinion, there is live link of cash found and seized during course of search, with reasons recorded by Ld. AO. It 8 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain cannot be considered as a borrowed satisfaction the Report of CBI. Ld. AO made his detailed enquiry by verifying return of income, where he did not find disclosure with respect to above cash found. Therefore, according to us, there is no infirmity in the reopening of the assessment under section 147 of the Act. 9.2 Regarding various judicial precedent cited by Ld. Counsel, first we consider the decision in case of Ashima Securities Pvt. Ltd. vs ITO and 3401/del/2013 dated 20th 9/9/2017, wherein, it has been stated that AO cannot make further investigation and rowing enquiries. We have carefully perused the decision and found that in present case before us, there is valuable material available with Ld. AO of cash seized by CBI and, therefore, it cannot be said that there is any absence of any valuable material available with Ld. AO. In view of this, the above decisions cited do not apply to facts of present case. 9.3 Next decision cited by Ld. Counsel is of Hon’ble Gujarat High Court in case of Krupesh G Thakkar V. Deputy Commissioner of Income Tax 77 taxmann.com 293, wherein, it has been stated that, under guise of reopening of assessment, Assessing Officer cannot make rowing enquiry. We have carefully perused above decision and found that in that particular case Assessing officer did not have any tangible material to form an opinion of income chargeable to tax having escaped assessment. However, in present facts of case before us, huge cash was found from assessee who is deriving Income under the head “Salary”. In view of this, above decision does not fit into the facts of the present case. 9.4 Next decision relied upon by Ld. Counsel is with respect decision by Hon’ble Delhi High Court in case of CIT vs Minakshi overseas Pvt. Ltd. 82 taxmann.com 300 (Delhi), wherein it has been held that, where there was no independent application of mind by Assessing Officer to tangible material and that conclusion of Assessing Officer was mere reproduction of conclusion in investigation report, reasons 9 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain failed to demonstrate link between tangible material and formation of reason to believe that income escaped assessment, and consequently reassessment was not justified. 9.5 In the present case before us, CBI Report already exonerated assessee with respect to cash found and seized, therefore, it cannot be said that assessing officer have relied upon any conclusion in investigation report of CBI. Further in present case; Ld. AO had tangible material in form of huge of cash found by CBI and upon verification return of income found to be undisclosed in the hands of assessee who is deriving only salary income and, therefore, there is a live link between tangible material and formation of reason to believe by Ld. AO as above cash was not disclosed in return of income filed by assessee. In view of this, we are of the view that above decisions cited by Ld. Counsel does not apply to facts of present case. 9.6 In the case cited before us, there was no reference of verification of information received from investigation wing with return of income of assessee. In the present case before us, Ld. AO verified original return of income filed by the assessee where he did not find the amount of cash seized by CBI. 9.7 Next decision relied upon by Ld. Counsel was with respect to SAB Infrastructure Ltd vs ACIT (supra). 9.8 We have perused facts of the case and found that it is also not applicable to facts of case before us. In that particular case, Ld. AO recorded reason merely based on report of investigation wing. There was no verification of return filed by assessee. There was also no reference, though assessment in that case was made under section 143(3) of the Act. In view of these facts of said decision, facts before us are clearly distinguishable. 9.9 Contrary to that Ld. Sr. DR referred decision of Sony India vs. ACIT dated 10/9/2018 and submitted that in the present case, there was no assessment made under section 143(3) of the Act and merely 10 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain return was processed therefore on verification of return. It was found that assessee has not disclosed the above sum seized from him. It was further stated that Hon’ble Supreme Court in 203 ITR 456 in Phool Chand Bajrang Lal vs Income Tax Officer has emphasised on veracity of information supplied during course of regular assessment. Therefore, he submitted that when information has been received from CBI about seizure of huge cash, which was not disclosed in return of income of assessee, reopening has been correctly initiated by Ld. AO. 9.10 Therefore on appreciation of facts in case of present assesee and that assessee is a salaried person who was searched by CBI from whom cash was found and seized which, was not disclosed in return of income filed by assessee, we do not find any infirmity in action of Ld. AO in initiating reassessment proceedings under section 147 of the Act. The CIT(A) rightly upheld reassessment proceedings. Accordingly, Ground number 2 raised by assessee stands dismissed. 10 Ground No. 3 is in respect of addition made by Ld.AO of Rs.1,40,00,000/-, under section 69A of the Act. During course of assessment proceedings, assessee explained the source of Rs. 2.10 crores. Assessee submitted that Rs. 1.40 crores is received against proposed sale of property. With respect to the advance received against sale of property, assessee submitted that Rs. 1 crore has been received by purchaser Shri K.K. Agarwal from two companies assessee submitted their balance sheets, where the sums were disclosed as advance paid to Kishan Kishore Agarwal. Ld. AO made addition, which was confirmed by Ld. CIT(A). 11 Ld. Counsel submitted that sum of Rs.1.40 crores seized during course of search, conducted by CBI from assessee’s premises, was received as advance from Mr K.K Aggarwal, against agreement of sale of property at Kavi Nagar, Ghaziabad. He submitted that transaction has been properly scrutinised by CBI and has been 11 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain excluded from computation of disproportionate assets. It has been contended that Sh. KK Aggarwal in his statement recorded with CBI, confirmed that he received Rs.1 crore from Sh.Vipin Gupta, which has been advanced by him from two companies, where Sh.Vipin Gupta is a Director. He further stated that Shri Vipin Gupta was also examined under section 131 of the Act regarding the same. It was submitted that remaining 40 Lakhs has been taken out from account of Shri KK Aggarwal, who was carrying on business as a proprietor. It was stated that his turnover was approximately 13 crores. Ld. Counsel placing reliance upon page 44 and page 52 of paper book wherein a sum of Rs.30 lakhs and 70 Lakhs has been advanced from M/s Alliance Fashions Pvt. Ltd and M/s Dolphin Fabrics Pvt.Ltd to Sh.K.K Aggarwal, respectively. He further submitted that as deal could not materialise, because of CBI search said amount has been returned back in subsequent years by assessee to Sh.K.K Aggarwal. He therefore submitted that assessee has completely shown amount of Rs. 1 crrore received by K K Agarwal through 2 companies and also source of Rs. 40 lakhs paid by KK Aggarwal through his own proprietary concern that had huge turnover. 11.1 Ld. Counsel submitted that assessee has shown identity of parties from whom monies were received, their creditworthiness is also explained and genuineness of transaction with respect to property stood established, as copy of agreement was found during course search by CBI. He further submitted that original copy of Agreement could not be found during course of search as it generally belongs to purchaser and not to the seller, assessee as a matter of practice. He further stated that Shri KK Aggarwal, Sri Vipin Jain both have been examined under section 131 of the Act by Ld. AO, who have confirmed the transaction. He further stated that both these persons have confirmed that they have received money back. He further stated that deal of sale of immovable property 12 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain was cancelled because of search by CBI in the case of assessee. The buyer (Sh. K.K. Agarwal) refused to buy the property. In view of this, addition of Rs. 1.40 crores cannot be made in hands of the assessee. 12 On the contrary, Ld. Sr. DR submitted entire dealing has been done by assessee in cash which itself creates suspicion regarding genuineness of transaction. Placing reliance upon orders of authorities below Ld. Sr. DR submitted that, creditworthiness and genuineness of Sh. Vipin Gupta is questionable and has not been proved. Hence, amount of Rs.1.40 crores has been rightly added under section 69A as unexplained money. We have perused submissions advanced by both the sides in the light of the records placed before us. 13 During course of search, Agreement for sale dated 19 December 2010 between assessee and Shri Krishen Kishore Agrawal for sale of property at KA – 49, Kavi Nagar and measuring 297.275 m² situated at Ghaziabad, for total sale consideration of Rs. 2.90 crores was found from premises of assessee. The above property was subject to mortgage with State Bank of India for loan taken by assessee. As per clause number 2 and 3 of Agreement, assessee was paid a sum of Rs. 1.40 crores by Sh. K.K. Agarwal. Assessee stated that cash found of Rs. 2.10 crores is consisting of Rs. 1.40 crores being cash given by buyer to assessee. Assessee submitted that Shri KK Aggarwal paid this sum of Rs. 1.40 crores to assessee. During the course of search before by CBI, Shri KK Agarwal was examined, who confirmed the above facts. Shri KK Agarwal explained that he has arranged money from one Shri Vipin Gupta. Shri Vipin Gupta paid cash of Rs. 1 core to Shri KK Agarwal from two Pvt. Ltd. Companies controlled by him. Balance Rs. 40 lakhs was paid by Shri K.K. Agarwal through his proprietary concern M/s Sri Krishna Agencies. The Ld. AO examined Shri KK Aggarwal and Sri Vipin Gupta. Both have confirmed above facts. They also supported it by producing 13 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain balance sheet of companies and cash book of Sri Krishna Agencies. Ld. AO disbelieved it stating that companies did not have adequate creditworthiness to provide such money and further Shri Vipin Gupta is not a person who is creditworthy of providing such sum to Shri KK Agarwal. Therefore, Ld. AO made addition of Rs. 1.40 crores as unexplained income of the hands of assessee. The Ld. CIT(A) confirmed the same. 13.1 Limited issue before us in this ground is whether sum of Rs. 1.40 crores is chargeable to tax in hands of assessee under section 69A of the act or not. 13.2 Sh.K.K Aggarwal from whom a sum of Rs.1.40 crores has been received by assessee was subject to scrutiny by CBI. On perusal of report by CBI, it is observed that statement has been recorded under section 131 wherein Sh. KK Aggarwal admitted to have paid this money to assessee. Regarding veracity of agreement to sell entered into between assessee and Sh.K.K Aggarwal, CBI called upon notary who notarised the same. All the parties have confirmed the Agreement to sell to be in order. Shri KK Aggarwal explained the source of Rs. 1.40 crores. It was stated that Rs. 30 lakhs and Rs. 70 lakhs have been received from two companies through Shree Vipin Gupta. The balance sheets of both companies were shown to Ld. AO along with their return of income and confirmation voucher about payment of the sum by those companies to Shri KK Agarwal, who in turn deposited the money with assessee for purchase of property. The transaction is also shown in the agreement to sell, copy of which is found during course of search of premises of assessee by CBI. 13.3 In so far as genuineness of Sh.Vipin Gupta is concerned, that cannot be a reason for making addition in hands of assessee, as creditworthiness of Sh.Vipin Gupta need not be ascertained in the present facts of case. Admittedly, Sh.K.K Aggarwal took money from Sh.Vipin Gupta who advanced funds as loan from his 14 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain companies, where he is Director. Balance sheets placed in paper book relating to companies from where monies have been advanced, which is relied upon by Ld. Counsel, substantiates the same. Further, assessee produced Shri KK Aggarwal and Sri Vipin Gupta, before AO who provided funds to shri K K Agarwal, who in turn advanced money to assessee for purchase of property. Both parties confirmed the transactions, showing source and trail of cash paid by Mr Vipin Gupta to Mr KK Agaral who in turn paid it to assessee. Ld. AO was also shown that all the parties involved in transactions from where cash was paid to Shri K.K. Agarwal, who in turn paid to assessee, are assessed to income tax. Assessee submitted their balance sheets and respective vouchers before assessing officer. Assessee also shown respective entries in balance sheet of those parties in the name of Shri KK other while under the head advances paid for properties. Assessee has also shown that Shri Vipin Gupta is carrying on business and has turnover of 13 crores by submitting the balance sheet and profit and loss account along with return of that person. Assessee also supported the payment from Shri Vipin Gupta to Shri K K Agarwal by producing cashbook of Sri Vipin Gupta. Therefore it is apparent that assessee has supported its contention by submitting annual report of companies showing, above payment, reply by companies to assessing officer in response to various notices, confirmation by Sri Vipin Gupta, production of audited financial statement of Shri Vipin Gupta, copies of respective vouchers of above payment, coupled with the copy of agreement to sale. 13.4 Further, assessee provided explanation that why property could not be transacted later on, for reason that after CBI search on assessee, buyer was not willing to buy the above property from the assessee. Further, market value determined by Ld. AO was also not based on any credible evidence. Assessee has shown that property was to be transacted for Rs. 2.90 crores and out of which only Rs. 15 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain 1.40 crores were paid by the buyer as advance. This was shown in the agreement to sell found during course of such. Therefore, explanation given by assessee cannot be rejected in absence of any contrary evidence found by AO. Thus, in our opinion, addition made by Ld. AO cannot be sustained. 13.5 In our considered opinion, Ld. A.O failed to establish non genuineness of agreement to sell. There is no evidence on record to establish transaction to be bogus. Merely on surmises and conjunctures, Ld. A.O cannot make additions in hands of assessee, without there being cogent material against assessee on record. We are therefore inclined to delete addition made by Ld.AO. Accordingly, Ground No. 3 stands allowed. 14 Ground No. 4 has been raised in respect of addition amounting to Rs.13,42,000/- as unexplained money under section 69A of the Act. The fact shows that, from two lockers with Canara Bank Rs. 37.59 lakhs and Rs. 13.48 lakhs was found and seized by CBI. From another locker with State Bank of India, a sum of Rs. 17.35 lakhs was found and seized. It was thus submitted total amount seized was Rs. 68.42 lakhs from three lockers. The assessee explained source of funds found in locker that it is out of ‘Will’ of father of assessee. Assessee submitted notarised copy of ‘Will’ before Ld. AO. The ‘Will’ was executed in the year 2008. Admittedly, it was not registered. CBI and Income Tax Department examined notary, it was confirmed that that ‘Will’ belonged to Late Roshanal Jain, father of assessee. Ld. AO in assessment order noted that ‘Will’ produced, seems to be genuine. Ld. AO further on examination of ‘Will’ noted that Rs. 55 lakhs has been bequethed to assessee. Therefore, out of 68.42 lakhs Ld. AO allowed Rs. 55 lakhs as explained and made addition of balance of Rs. 13.42 lakhs as undisclosed income under section 69A of the Act. The Ld. CIT(A) confirmed the addition. 15 Ld. Counsel submitted that a sum of Rs.68.42 lakhs was seized from various lockers by CBI. He submitted that Ld.A.O. added sum of 16 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain Rs. 13.42 lakhs and accepted balance Rs.55 lakhs. Ld. Counsel submitted that entire money has been received by assessee under ‘Will’ of Late Roshan Lal Jain, being father of assessee. He further submitted that Ld.A.O made addition only on the ground that, money was not found in locker. He submitted that entire money was received by assessee under ‘Will’ and Ld. A.O partly admitted receipt of money under ‘Will’, balance cannot be denied without there being contrary materials on record. He submitted that there has been no evidence on record to establish anything contrary. 16 Ld. Sr. DR though supported orders of authorities below, submitted that Will has not been probated by assessee and therefore its authenticity cannot be relied upon. Further, he submitted that various observations of CBI regarding the will could not be ignored. He thus supported addition to be upheld. 17 We have perused the submissions advanced by both sides, in the light of records placed before us. 18 Admittedly, there is no dispute regarding money having received under a Will, by assessee. Further, Ld. AO himself stated that that ‘Will’ seems to be genuine. Part of the Will has been accepted by Ld. AO and held Rs. 55 lakhs as explained source of the cash found in the lockers. Ld. AO rejected balance sum of Rs. 13.42 lakhs only for reason that that though money has been found from locker, it has not been mentioned that such sum was kept in lockers. We do not agree with contention of Ld. AO that merely because in the Will, it has not been stated that money is to be kept in locker, it cannot become unexplained money of assessee. In the Will it has been stated that Rs. 12 to 15 lakhs was given to assessee from time to time by his father (grandfather of assessee). The above sum of Rs. 13.42 lakhs is falling within range of Rs. 12 to 15 lakhs stated by Late Father of assessee. Ld. AO believed the ‘Will’ to be genuine and granted substantial credit of Rs. 55 lakhs out of sum found amounting to Rs. 68.42 lakhs from lockers. 17 ITA 3794/Del/2018 A.Y.:2011-12 Sh. Vijay Kumar Jain 19 We are not inclined to uphold balance addition of Rs. 13.42 lakhs as it was made on flimsy ground. Accordingly, orders of lower authorities are reversed and Ld. AO is directed to delete addition of Rs. 13.42 lakh. Accordingly, Ground number 3 of the appeal of the assessee is allowed. In the result appeal filed by assessee is partly allowed. Order pronounced in the Open Court on 13.11.2018 Sd/- Sd/- (PRASHANT MAHARISHI) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dt. 13th November,2018 *GMV/ *Kavita Arora